CAM caps: cumulative, non-cumulative and compounding

A CAM cap limits how much of the growth in operating expenses a tenant can be asked to pay, and almost every cap applies only to the controllable part of those expenses. A non-cumulative cap tests each year on its own: the ceiling is set, the actual is compared to it, and any room left under the ceiling is gone. A cumulative cap has memory: unused room from a year where expenses grew slowly carries forward and raises the ceiling in a year where they spike. A compounding cap is a question about how the ceiling itself grows: by a flat percentage of the starting amount each year, or by a percentage of the previous year’s ceiling, so that increases build on each other.

The words are used loosely, and that is the first problem. One lease’s “cumulative” is another’s “compounding”, and law-firm drafting guidance reports at least one court reading “cumulative” to mean compounding rather than carry-forward. The percentage on the term sheet — 5% is common, the practitioner range runs from about 3% to 10% — says little until you know what base it is measured from, whether unused room carries forward, and what it is applied to. On the same tenant with the same costs, the three common mechanics produce 2026 ceilings of $57,500, $57,881 and $61,425, and by 2028 they are $62,500, $63,814 and $69,300. This post builds those tables, works a carry-forward year, shows how ordering against the base year and the gross-up moves the number, and ends with the record that lets year five be computed without reopening years one to four.

What a cap limits

The cap applies to controllable expenses, and the lease defines the term, usually by listing the uncontrollable items and treating everything else as controllable. Practitioner and law-firm lists agree on the core and disagree at the edges.

Taxes, insurance and utilities appear in nearly every uncontrollable list. Snow removal and security are the contested rows, and some forms add a catch-all for any cost beyond the landlord’s reasonable control, which is a negotiation deferred rather than settled. At Harbor Point Plaza the controllable set is management, landscaping, security, grounds, janitorial and repairs, and the uncontrollable set is insurance and utilities. The pool has to be split before the cap can be applied at all, and split per lease, because two tenants in the same building can have different uncontrollable lists.

Cap on the increase, cap on the amount

Every mechanic in the next section is a cap on the increase: the tenant’s controllable share may grow by no more than a stated percentage. A cap on the amount fixes a ceiling in dollars or dollars per rentable square foot, flat or escalating by a schedule in the lease; some retail leases pair the two, a dollar cap in the first year and a percentage cap after it. A cap on the amount is simpler to administer, because it depends on no prior year, and harder on the landlord, because it does not move with costs. An expense stop is sometimes called a cap, which it is not; the stop sets the floor the landlord absorbs, and a cap sets the ceiling the tenant pays. Base year versus expense stop keeps those two apart.

The three mechanics, five years out

Brightleaf Yoga, Suite 210, 8.00% of Harbor Point Plaza, base year 2023, when its share of controllable expenses was $50,000. Its actual controllable share since: 2024 $54,000, 2025 $58,500, 2026 $64,000, and, to show where the mechanics go, 2027 $66,000 and 2028 $72,000. The cap is 5%.

Simple, measured from the base year. The ceiling rises by 5% of the base-year figure each year — $2,500 — regardless of what was spent. Year n ceiling is $50,000 × (1 + 0.05 × n).

Compounded, measured from the base year. The ceiling rises by 5% of the prior year’s ceiling. Year n ceiling is $50,000 × 1.05 to the power n.

Measured from the prior year’s actual. The ceiling is 105% of what the tenant’s controllable share actually was last year, whether or not that was above the cap.

The billed amount each year is the lower of the actual and the ceiling.

Three things to check in the tables. The simple and compounded mechanics are identical in year one and only $125 apart in year two, which is why the distinction is missed; by 2028 the gap is $1,314 a year and growing, because compounding is a curve and the simple cap is a line. The prior-actual mechanic is barely a cap on cumulative growth at all: in 2027 the actual of $66,000 came in under the $67,200 ceiling, so the tenant pays actual, and in 2028 the ceiling restarts from that actual; over five years this tenant pays $18,425 more than under the simple cap, for the same costs and the same stated 5%. And a fourth variant, 5% on the prior year’s billed amount rather than its actual, matches the compounded-from-base column as long as actuals exceed the ceiling every year, and diverges in a year like 2027, because the next ceiling then grows from the lower billed figure. The calculator runs all of these on your own base, actuals and percentage.

Carry-forward: the cumulative cap, worked

A cumulative cap, in the carry-forward sense, lets the room the landlord did not use in a slow year raise the ceiling in a later one. It matters most under the prior-actual mechanic, where the ceiling otherwise collapses to actual whenever expenses grow slowly; under a simple-from-base cap the ceiling is a schedule fixed on day one, carry-forward is built in, and a year of flat expenses does nothing to the 2028 ceiling of $62,500.

Atlas Wealth Partners, 13.16%, with a 5% cap measured from the prior year’s actual and a 2023 controllable share of $80,000. Expenses grew 3% in 2024 and 2% in 2025; a new security contract and a repair-heavy winter then pushed 2026 up by 14.2%.

The 2026 ceiling depends on whether the cap is cumulative, and if so, in what unit.

The difference between the last two rows is $131, and it exists because a percentage point of 2024’s base is not the same number of dollars as a percentage point of 2025’s. Most leases that provide for carry-forward say nothing about the unit; either reading is defensible, and the point is to pick one, record it, and apply it the same way every year. Some leases also provide the opposite mechanism, usually called recapture, under which the $7,750 the landlord absorbed in 2026 can be recovered in a later year where actuals fall below the ceiling. Carry-forward and recapture are separate rights; a lease can grant one, both or neither, and the word “cumulative” on its own is not reliable evidence of either. Either way, the 2026 ceiling cannot be computed from 2026 data: it needs the 2024 and 2025 actuals, ceilings and billed amounts, which is the cap history discussed at the end.

Before or after the base year, before or after the gross-up

A base-year tenant pays its share of expenses above the base-year share; a capped base-year tenant pays that, subject to the cap, and the lease has to say which operation comes first. Brightleaf in 2026, with the simple-from-base cap: its gross share of the grossed-up pool is $86,000, of which $64,000 is controllable and $22,000 uncontrollable, and its 2023 base share is $74,000, of which $50,000 is controllable and $24,000 uncontrollable — the uncontrollable share fell because a utility contract repriced.

Here the two readings agree, because a simple cap on the share and a simple cap on the increase are the same arithmetic arranged differently. They stop agreeing under the other mechanics: a compounded cap on the share gives a 2026 ceiling of $57,881 and a bill of $5,881, while a compounded cap on the increase — 5% of the prior year’s capped increase — starts from a much smaller figure and produces a much smaller bill, which is why a cap on the share is the norm. Where the lease caps “Tenant’s Share of Controllable Operating Expenses”, it caps the share; where it caps “the amount payable by Tenant on account of increases”, it caps the increase.

The gross-up raises the same question. At Harbor Point the controllable expenses include janitorial and trash, grossed up from $240,000 to $285,000 in 2026, so Brightleaf’s controllable share is $60,400 before the gross-up and $64,000 after it. If the cap is tested on grossed-up controllable expenses, the comparison is $64,000 against $57,500 and the bill is $57,500. If the lease caps actual controllable expenses and applies the gross-up as a separate adjustment outside the cap, the comparison is $60,400 against $57,500, and the $3,600 adjustment is then arguably added on top for a bill of $61,100. The first reading is more common and more coherent — the gross-up restates the expense, it is not a charge in its own right — but a lease that defines controllable expenses as actual amounts paid and grosses up separately has left the door open. In either reading the base year has to be grossed up on the same basis, for the reasons in gross-up clauses, explained.

Caps and the base-year reset on renewal

A renewal usually resets the base year, and the question is what happens to the cap. Take Brightleaf renewing for 2029 with 2028 as the new base year, under the simple-from-base cap: its 2028 actual controllable share was $72,000 and its billed share $62,500.

If the new base is the 2028 actual, the floor for the renewal term is $72,000: nothing is recoverable until controllable expenses exceed it, the cap schedule restarts from $72,000, and the $9,500 the landlord absorbed in 2028 is built into the floor permanently. If the new base is the 2028 capped amount, the floor is $62,500 and the 2029 ceiling is $65,625, which keeps the landlord’s shortfall alive into the renewal. The actual is the usual reading, because a base year is a year of actual expenses, and most renewal clauses are silent on the cap; a landlord who wants the cap history to survive has to say so in the amendment. The other renewal question is whether the cap runs for the renewal term at all: a cap applying “during the Term” extends to a renewal that is an extension of the Term and not to one documented as a new lease. The lease record should say, per lease, whether the cap applies in the renewal term, from what base, and whether unused room and recapture carry across the reset.

What the language usually looks like

The clauses below are paraphrased forms, not quotations from any lease, with the common interpretation of each; counsel reads the actual sentence.

• Simple from base, non-cumulative. Tenant’s share of controllable expenses in any year shall not exceed the base-year share increased by 5% for each year elapsed since the base year, on a non-cumulative and non-compounding basis. A straight line from the base.
• Compounded from base. Tenant’s share of controllable expenses in any year shall not exceed 105% of the maximum amount that could have been charged in the prior year. The ceiling grows from the prior ceiling, whatever was billed.
• Prior year’s actual. Controllable expenses for any year shall not exceed 105% of controllable expenses for the prior year. The clause often does not say whether the prior year’s figure is actual or as billed, which is the fourth variant above.
• Cumulative carry-forward. To the extent the increase in any year is less than 5%, the unused portion may be carried forward and added to the permitted increase in subsequent years. Sometimes in percentage points, sometimes in dollars, usually in neither.
• Recapture. To the extent controllable expenses in any year exceed the cap, the excess may be recovered in any subsequent year in which they fall below it. A separate right, separately granted.

Law-firm drafting guidance is consistent on one point: the words “cumulative” and “compounding” do not reliably produce either carry-forward or recapture on their own. When the lease uses one of those words without a description, record the reading applied alongside the computation, so that the tenant’s auditor is arguing with a documented interpretation rather than an undocumented one.

Recording the cap so year five can be computed

Every mechanic except the simple-from-base cap needs prior years to compute the current one, and even the simple cap needs the base-year controllable share on the same basis as the current year. The record that makes year five a lookup holds, per lease, these fields.

The per-year rows are the ones that get lost: they sit in a workbook tab for the year, the next year’s workbook starts from a copy with the tab deleted, and by year four the 2024 ceiling is a number somebody remembers. A reopened 2024 — a tenant audit that finds $2,000 of capital in that year’s controllable pool — changes the 2024 actual, which under the prior-actual mechanic changes the 2025 ceiling, the 2025 unused room and the 2026 ceiling, so the correction cascades through every later statement. That cascade is why cumulative caps are so often right in each year taken alone and wrong in sequence.

What makes the next one easier

The cap has one annual input, the year’s controllable share; everything else is either in the lease or in prior years’ results. When the mechanic, the controllable definition, the base-year figure and the ordering are recorded once on the lease, and each year’s ceiling, billed amount and unused room are kept with the year they belong to, the cap step is a re-run rather than a re-derivation. In Ledgerstone the recovery rules — caps, base years, gross-ups, exclusions, recovery groups — live on the lease, and the reconciliation shows the derivation behind every figure, with sealed periods, so the 2024 ceiling is still the 2024 ceiling when 2028 is computed from it.

Related reading

• What a CAM reconciliation actually involves — where the cap sits in the sequence, with the same three mechanics in brief.
• Base year and expense stop are not the same thing — the floor the cap is applied against.
• Gross-up clauses, explained with the arithmetic — why the base year has to be grossed up before the cap is tested.
• The CAM reconciliation checklist — step 9, where caps and base years go on.